KEY INVESTMENT HIGHLIGHTS

• Below expectations
• Timber products: profit maintained its red
• Oil Palm; higher average CPO price realized in line with industry average
• Earnings forecast; tweaked lower
• Downgrade to NEUTRAL with a revised TP of RM4.34

Earnings below estimates. After excluding the change in fair value of biological assets and forex gain, Ta Ann's core PATAMI came in at RM63.5m (+2.0%yoy) brings 9M24 to RM129.72m (-6.1%yoy). While this was largely considered below our/consensus estimates, making up about 60%/68% of full-year estimates, this was due to biological tree rest cycle hitting the Sarawak region. Additionally, CPO production was also down by -5.0%yoy due to aforementioned factor.

Timber products. The segment sales declined to RM51.2m (+9.4%qoq, -44.9%yoy), in tandem with softer ASP of plywood and export logs subsegment that easing by -7.8%yoy and -5.7%yoy, respectively. The PBT-row continued its red circa -RM3.5m, despite the higher sales volume recorded dragged by the higher cost of production. It is worth noting that the logs and plywood ASP was weaker following its normal trend where it influenced the depreciation of Japanese yen on top of softer demand from Japanese housing market in the 3QCY24.

Oil palm. In contrast, the Oil palm rose to RM416.0m (+30.8%qoq, +5.0%yoy), in tandem with higher CPO and PK average selling price realized at RM3,980/Mt (+7.0%yoy) and RM2,435/Mt (+28.0%yoy), respectively. Meanwhile, earnings jumped to RM108.4m (+14.5%yoy) with margin expanding by +12.5pts, owing to the softer all-in cost of production of which is estimated below RM2,800/Mt level.

Earnings estimate. We have tweaked our earnings estimate to align with the new baseline projection. We are projecting a prudent approach by cutting the FFB production to 730,000 to 790,000 Mt, in light of the softer FFB yield anticipation over FY24-25F on biological tree rest conditions and adverse weather conditions. Since a big chunk of FFB processed came from external FFB purchase, our CPO production growth would be mixed -6%/+3%/+3%, as a result, our new normalised earnings are RM194.7m/RM225.1m/RM212.6m in those periods.

Recommendation. We downgrade Ta Ann to NEUTRAL with a revised target price of RM4.34 to FY25F EPS of 51.1 sen while keeping our 8.5x P/E target unchanged, to nearly 5 years' historical average mean.

The share price is highly connected with CPO movement 0.82 correlation, hence any movement in CPO prices (e.g. wet weather spell) would provide trading opportunity in the stock.

Source: MIDF Research - 26 Nov 2024